UPDATE 1-Singapore's Temasek to sell last of 3 power firms

(Adds details, background)

SINGAPORE, Oct 7 (Reuters) - Singapore state investor Temasek Holdings [TEM.UL] kicked off the sale of electricity generator PowerSeraya on Tuesday, in a deal that could fetch around $2.5 billion.

PowerSeraya, the last of three power firms that Temasek is selling as part of Singapore's efforts to liberalise its power-generating sector, provides about 28 percent of the city-state's electricity.

It has a capacity of 3,100 megawatts (MW) but this will rise to 3,900 MW by 2010 as the firm is in the process of building an 800 MW capacity natural gas-fired plant.

PowerSeraya "has attracted strong indications of interest from a number of potential bidders," Temasek's director of investment Gwendel Tung said in a statement.

A banking source involved in the bidding said possible suitors for PowerSeraya include India's Tata Power (TTPW.BO), Bahrain investment bank Arcapita and Hongkong Electric (0006.HK).

A second source said initial bids are expected by the end of this month with the winner to be selected before the end of the year.

"The structure of the deal will be similar to Senoko Power in that there will be form of financing arrangement for qualified bidders," the second source added.

Temasek last month sold Senoko Power, which has a 3,300 MW capacity, to a consortium led by Japanese trading house Marubeni Corp (8002.T) for S$3.65 billion ($2.49 billion). The Marubeni consortium also assumed S$323 million of Senoko's debt.

To help Senoko's bidders affected by the ongoing global credit crunch, the Singapore sovereign fund had lined up banks that could provide the winning bidder with a bridging loan of 70 percent of the purchase price at a rate of 250 basis points above the London Interbank Offered Rate (Libor).

For the year ended March 31, 2008, PowerSeraya had revenues of S$2.79 billion ($1.90 billion) and earnings before interest, tax, depreciation and amortisation of S$355 million.

"As with the sale of the other two gencos, the sale of PowerSeraya will be subject to acceptable price and commercial terms," Temasek said. (Reporting by Kevin Lim; Editing by Kim Coghill)